Layoffs Hit John Deere
The Dow trended higher in four of five sessions and closed with a weekly gain of more than 270 points.
The rally was supported on Friday, when the Labor Department reported U.S. employers trimmed 345,000 positions from their payrolls last month. That’s considerably less than the half-million job losses many economists had projected.
Nevertheless, the nation’s unemployment rate rose a half point from April to 9.4 percent. That too was lower than many analysts expected, but is still the highest jobless rate in 26 years.
General Motors, which joined Chrysler in bankruptcy this week, announced it will close a dozen factories idling 18,000 to 20,000 workers.
At least one employer is hiring, though… Wal-Mart, the world’s largest retailer, says it’s opening about 150 new or expanded stores in the U.S. in 2009, and expects to hire about 22,000 people.
Rural America, of course, isn’t immune to the scourge of unemployment. And this week the nation’s dominant manufacturer of agricultural machinery announced it too is cutting jobs.
In light of the earnings report, Deere announced it will layoff 700 workers at its Ottumwa, Iowa factory where 980 people are employed. Combined with previous layoffs Deere has cut about 1,600 employees from its Iowa payroll, or 13 percent of its 12,000 employee Iowa workforce.
According to Iowa State University economist Neil Harl, the agricultural based economy may seem shielded from the current global economic crisis, but it isn’t totally insulated.
Dr. Neil Harl, Iowa Sate University: “Agriculture is not an economic island. I testified to congress on April 1st about this. The key point I made in the very first paragraph is agriculture is not an island. It is missing the bullet here, but the longer this thing continues, the downturn, the global meltdown, the more it affects agriculture. And, you have to separate agriculture from rural areas. Rural areas have been hurting far more than the agricultural sector has been because these are the people who have been laid-off from Deere. But, agriculture has been buoyed up because we’ve had better agricultural prices.”
In the midst of the layoffs, Deere announced that Samuel Allen will replace Robert Lane as its chief executive. Allen, who started with Deere in 1975 as an engineer, will be the ninth CEO in the company’s 172-year history.
Farm Groups Push Climate Change Bill Rewrite
U.S. Energy Information Administration projects world energy consumption will grow by 44 percent over the next two decades. And it says the absence of limits on carbon dioxide emissions means much of the increase will come from burning fossil fuels.
The government says the largest increases in energy use will come from developing nations such as China and India.
Legislation designed to mitigate the effects of climate change is winding its way through Congress. Rural advocates acknowledge the move is a step in the right direction, but they say the proposals fail to consider the role of agriculture in fighting climate change.
The climate change bill, shepherded through the House Energy & Commerce Committee late last month by its Democratic Chairman Henry Waxman, includes sweeping legislation that would fundamentally alter the way the U.S. uses energy.
From its inception, the bill has drawn sharp criticism from agricultural groups. They say the bill establishes as much as 2 billion tons in carbon offsets, but doesn’t have provisions for farmland or forestry to play a role in those offsets.
Rick Krause, AFBF: “Energy companies, oil refineries, wild life advocates, etc. all receive something in this bill. It seems like the only industry that was not addressed in this bill was agriculture."
Meanwhile, Agriculture Secretary Tom Vilsack is promising to advocate for agricultural offsets in the climate bill. According to Vilsack, agriculture emits 7 to 10 percent of U.S. greenhouse gases but could offset as much as 25 percent of the nation’s pollutants via farming practices that prevent carbon dioxide from entering the atmosphere. Vilsack adds USDA is better suited than EPA to monitor those practices since it has more than 2,000 offices and employees in nearly every county in the nation.
The House climate change bill requires factories, refineries and power plants to reduce emissions of carbon dioxide and six other greenhouse gases by roughly 80 percent by mid-century. Congress hopes to speed up the nation's energy shift away from fossil fuels by putting a price on carbon dioxide releases. The government would issue pollution allowances, or permits, to businesses that could be traded on the open market. The bill initially would give away 35 percent of the allowances to electric utilities to prevent higher energy costs from being passed on to consumers.
With Congress back in session, farm groups wrote to House leaders Tuesday, asking them to create an agricultural offset program that is unlimited and recognizes farmers and ranchers who have already implemented carbon-capture practices. The rural advocates also want any program with agricultural offsets to be under the thumb of USDA, rather than the Environmental Protection Agency.
The Waxman bill would reduce greenhouse gases by 17 percent by 2020 and about 80 percent by mid-century.
Small Wind Makes A Comeback In Rural America
The Senate Committee on Energy and Natural Resources is considering a bill that would require the country to generate 11 to 15 percent of its power from renewable resources, including wind and solar, by 2021. House lawmakers are weighing similar legislation and President Obama is even more ambitious -- calling for 25 percent by 2025.
While the vast majority of current wind power comes from large commercial operations, homeowners also are embracing the “winds of change.” And as David Miller discovered, that’s reintroducing some rural Americans to an old friend.
The idea behind home power generation is not a new one. Thousands of small wind turbines dotted the landscape in the early part of the last century only to be replaced by Rural Electric Cooperatives or RECs. Though most of the first generation turbines may have been relegated to ornamental status there has been a resurgence of the concept over the past few years. For John Clough of rural Nevada, Iowa today signals the end of eight months of research and four months of climbing over paperwork and construction hurdles.
John Clough, Nevada, Iowa: "I can't believe it at this point. You think back to the winds of January when you had no idea that you were going to make it this far...you can't believe it."
As chief accountant for the Department of Energy's Ames Laboratory, located on the campus of Iowa State University, Clough was inspired to erect a turbine on his acreage to cover some of his electrical demand.
John Clough, Nevada, Iowa: "It's the right time to do it, you want to think green. And also I work in a place that works with energy. If the people who are creating energy solutions aren't doing it, no one else can believe it."
Updated for the 21st century, the new units turn in winds of as little as 8 miles per hour and provide alternating current to operate readily available household appliances. More often than not, the units not only supplement power needs in rural settings but they supply enough electricity to run a home completely disconnected from the power grid.
After learning the price of his electricity was going to increase this year, Clough knew the $17,000 he paid for the 1.8 kilowatt turbine was a good idea. Several states offer incentives for renewable energy investment and Clough will be taking advantage of the federal government's 30 percent tax credit.
John Clough, Nevada, Iowa: "...people are talking about it, people are doing it, it's something that for a person who is out in a rural situation and has a little higher electrical bills it makes sense at this time, it's a long-term thing, it could take 20 years to recoup the costs but still you're doing your part. I can potentially reduce maybe a third to half of the monthly bill."
According to the American Wind Energy Association, or AWEA, Iowa ranks second in commercial wind power generation, turning out nearly 3,000 of the sectors 28,000 megawatts. When it comes to what is now known as "small wind", AWEA statistics show there are more than 10,000 turbines in the U.S. are producing power a little more than 17 megawatts. More than 90 percent of the units are grid-connected like Clough's. And, according to a 2009 AWEA study, sales of small turbines between 2008 and 2009 increased by 20 percent.
Sixty-five miles to the southwest, another small-wind user is already taking advantage of the savings. Roy Jobst, put up a wind turbine on his rural Earlham, Iowa farm where his auto repair business and house share property. Since its installation in March, Jobst has watched his turbine feed power back to the grid on the meter outside his shop.
Roy Jobst, Earlham, Iowa: "The first bill we got was, our electric bill was $50, normally it's around $120."
With days like this one, Jobst is expecting his turbine to pay for itself in 10 years.
Roy Jobst, Earlham, Iowa: "Well, everybody's going green, you know. This is a coming through down the road and wind energy basically is free, all you do is pay for the original investment and from there on it's 'money in the bank.'"
Both Jobst and Clough are customers of small wind vendor James McCain. McCain became interested in helping Iowans generate their own green power after receiving his two-year degree in 2007. Instead of investing in two more years of higher education, he decided to fulfill his dream by opening Innovative Kinetics.
James McCain, Innovative Kinetics: "I was looking for people in this industry and I realized there's nobody in 200 miles doing what I do. So, rather than spend that money on education I figured I'd start my own company and be even farther ahead than where I would be coming out of college. So, it was really kind of passion and just chance that drove me to this spot. And it was really a way for me to quit complaining about what was going on and actually do something about the problems."
From his Des Moines, Iowa-based business, McCain specializes in sales and installation of small-scale wind turbines, solar power arrays, and biodiesel distillation units.
McCain says there are still several hurdles that small-wind owners encounter like permitting. Because the turbines are mounted on towers over 50 feet tall Jobst and Clough paid $1000 for the proper county zoning and construction permits.
James McCain, Innovative Kinetics: "...every time we do this it gets easier and easier and we start to see some real fruits of our labors coming out of it."
While working through the bureaucratic paperwork maze, both men had to get interconnection agreements with their local power providers. Clough's provider is Consumers Energy, an REC with five thousand members in five central Iowa counties.
David Stineman, Energy Solutions Manager, Consumers Energy: "I mean there's hardly a week goes by that we don't get three or four phone calls about wind turbines. ...These aren't farmers that have a bunch of land they want to lease to a wind farm, but mostly homeowners that want to cut their energy bill."
In the past, power companies have had a reputation of balking at the purchase of more expensive so-called renewable energy, but officials at Consumers were more than willing to honor requests made by their members.
David Stineman, Energy Solutions Manager, Consumers Energy: "I think probably for most utilities it is a change of mind. As time has gone by you realize that, 'hey this is the way it's going to go. We're going to have more renewable energy.' It's not going to replace the base load that we need out there because if the wind doesn't blow it's going to get hot and the lights won't be very bright, you know. So, we know that there's a need for the base load and the wind is a good supplement."
Clough pays 12 cents for every kilowatt he purchases from Consumers. In turn, Consumers will bank any unused electricity and off-set Clough's bill at the same 12-cent-per-kilowatt rate.
Clough realizes he is a pioneer in small wind power generation but he readily embraces his role.
John Clough, Nevada, Iowa: "...someone has got to take the chance, someone has got to be the first, someone has got to help out in their little way and that's where I've also come from beyond the economics. You’ve got to say, well, here's my little part."
For Market to Market, I'm David Miller.
Market Analysis: Tomm Pfitzenmaier, market analyst
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For the week, July wheat lost nearly 14 cents, and the nearby corn contract was up about 8 cents.
The real action again this week was in the soybean pits where the July contract gained more than 40 cents and the nearby meal contract was up $14 per ton.
In the softs, cotton fell below the 60-dollar mark as the December contract posted a loss of $1.28
In livestock, June cattle were down $1.17. Nearby feeders lost more than $5.00. And the June lean hog contract posted a hefty loss of $6.75.
In other markets of interest, the Euro lost 170 basis points against the dollar. Crude oil gained more than $2.00 per barrel. Comex Gold was down $17.70 per ounce. And the Goldman Sachs Commodity Index gained more than 10 points to close at 454 even.
Pfitzenmaier: Thanks, Mark.
Pearson: Looks like things are kind of heating up again in the commodities as we go into the summer months being led in part by a cheaper dollar and higher oil prices. What do you see ahead on that front, Tomm?
Pfitzenmaier: Yes, that's the perception anyway by traders is that everything that the government is doing, all the policies that they have adapted are ultimately going to lead to inflation and one of the ways to protect against inflation is to own commodities, to own aluminum or copper or grains or gold or the whole bundle so that's why you've seen a lot of our commodities this week benefit from that. And also all this has made people run as fast as they can run away from the dollar which is also supported. That's why I guess we're having that little island that Neil Harl referred to earlier in the show. That's kind of what's going on here in the short run.
Pearson: So, where is this all going to lead us? Oil is going to keep going up, there's talk out there $75, $85 a barrel, is that going to pull the corn and the bean markets up along with it?
Pfitzenmaier: Well, it's going to pull corn along. This biodiesel thing just doesn't work very well -- crude oil goes up but also the price of bean oil goes up so they just continue to not be competitive. Bean oil usage for biodiesel is down like 60% versus a year ago. So, that has kind of priced itself out of the market for a while here. On the other side, ethanol probably going to continue to benefit. The higher price of corn hurts but the crude oil is going up to offset and you've seen ethanol prices go up also.
Pearson: So, we've seen some strengthening in that part of the world, these stronger energy prices. Talk about this weak dollar, though, Tomm. Obviously there's a lot of fiscal stimulus spending going on for one thing and the outlook is for more. Is that what's driving the dollar? Are there other factors?
Pfitzenmaier: There's a lot of policies that we have implemented that are not friendly to the dollar. The sanctity of contracts and some of the other things that people kind of trusted about the U.S. with all these banks and auto companies everything kind of being quasi-taken over I guess you might say I think is scaring the investors that normally ran to the dollar for comfort and security and now they're looking around and going maybe we can go to the Australian, maybe we can go to the Canadian dollar, there's other places we can go and they're running away from the dollar. I don't see policy changes coming up that are going to sort of blunt that for a while here anyway.
Pearson: Let's get down to these commodities. Let's talk about the wheat market first and what you see happening there. A little bit of pressure there this week, we're moving into harvest, what's happening here?
Pfitzenmaier: Wheat shouldn't have gone up as high as it did in the first place. I don't think it was a huge surprise to anybody. There's a lot of wheat around the world and a lot of it is cheaper than what our wheat is. So, we had this nice little run up because, again, the dollar cheaper, all the other beans going up, corn going up, everybody kind of got euphoric and started thinking about last summer and how great the wheat market was then and they started running in and buying wheat and then all of a sudden by the end of the week they went, wait a minute, maybe that wasn't such a great idea and they started dumping wheat back out particularly Thursday was an ugly day.
Pearson: It was ugly. So, at this stage of the game what are you telling producers?
Pfitzenmaier: We've rallied up to levels that we probably shouldn't have been at. You get up in the mid $6.50s and you need to be selling wheat because there's not really anything going on that's going to sustain wheat up at those prices.
Pearson: You talked earlier about ethanol and the impact on corn for oil prices. Was that part of what happened this week then?
Pfitzenmaier: For the corn market -- yes, partially, you've got the weather going in and then you've got fund buying, the funds are just pouring in buying corn all week this week. We're trying to triangulate here now what is the demand for corn. We've decimated the livestock industry as you saw from the quotes we had just at the beginning of our segment here and that's a big lag of the demand for corn is really getting hurt badly. Ethanol is probably going to hang in there okay, the question is how much benefit are we going to have for exports from the weaker dollar? The weaker dollar should have benefited livestock markets and it hasn't done a thing for them this year. So, it doesn't necessarily translate to excess in commodity buying. We have to figure that out and then we've got this acreage, as of Monday we had about six million acres to get planted and that's the big question, how many of those six million acres are going to get planted and how many are ultimately going to be switched over to beans? Right now everybody is assuming 1.5 to 2 million acres are not going to get planted and are going to go to beans which then you have to say what is yield going to do? Well, the late planted stuff is going to yield a little less, obviously the stuff that doesn't get planted at all gets subtracted off and then you have to ask yourself that stuff that got planted early really looks good, it got planted in good shape, they're calling for normal precip and cool temperatures which is perfect for growing corn this summer so where are we going to be on that. We've got another acreage number, a little more firmer acreage number coming out the end of June, I think people are going to be watching that. We've got an updated supply and demand report coming out next week that's going to kind of give us a hint on where we're at on carryout. But the acreage number is really a big wildcard that people are going to kind of focus on most of this month.
Pearson: Do you think we're just going to see more sympathy buying of corn with the crude oil complex and everything else and the concern about acreage? Should we hold off on making sales? This looks like a pretty fat price in here.
Pfitzenmaier: It is -- I think anywhere here upwards of $4.70 to $5.00 range it's a heck of a good price for corn. If you have a good yield which kind of is shaping up we're going to have for most people I think you'd be hard pressed to find a reason not to be starting to get some sales made. Historically this is the time of year when it happens. Last summer taught us a lot about not ignoring these good prices when they come along because they can slip away from you and we do have demand issues here, like I said, on the livestock side. So, don't let yourself get too bulled up here on this.
Pearson: Talk about the soybean market and what you see happening there. Obviously more acres it looks like, more production, more numbers going into next year and more carry out.
Pfitzenmaier: It's a tale of two markets, you've got the old crop situation that is really going to be tight -- again, that's the number they're going to be looking at next Wednesday morning on that supply and demand report is how tight will the USDA make that old crop carryout number and where is pipeline? They're probably going to have to put it at pipeline and ingest everything backwards just to make it work. So, then you have the other thing is what is demand going to do? This week we saw cancellations from the Chinese, they actually had a negative export number. If that starts to continue and people start backing away then the old crop has accomplished what it needed to accomplish, people begin to look at new crop and go, wait, we might pick up some acres from cotton, some acres from wheat, some acres from corn, some of those fallowed acres might start getting pulled back in since we've rallied beans $3 since that sort of survey was done. So, you get up in this $10.50 to $11.00 range, again, you need to be a seller or find some way to get minimum prices or something on new crop beans.
Pearson: You talked about the livestock markets a minute ago, the fed cattle market a disastrous week on the board, same thing on hogs. Talk about where you see the fed cattle market going forward.
Pfitzenmaier: I've been hammering on this all winter, we keep talking about numbers, concerned about numbers and the numbers aren't the issue, the numbers are down, it's the demand for the product. You've got hamburger this week is almost a dollar higher than Iowa chops are. How are you going to move the beef? You've had periods where you had choice higher than select, that's not a good setup for having good beef prices. Now, maybe you can get rallies back up in the mid 80s, 84, 85 and those probably should be sold because I don't see anything that's all that positive for that market demand wise over the next two, three, four months.
Pearson: This calf market, again, we talked about these small calf crops and everything else that we're dealing with, feeders took it this week too, they took it hard.
Pfitzenmaier: Yes, and we've got good grass. Probably a lot of that buying has been done and you just start to see high corn prices and people will back away. I had a producer say to me this week, he said, I've been feeding cattle and I've been watching my neighbors hauling corn to town for $4 a bushel and I'm sitting here losing money on the cattle I'm feeding my corn through, why do I want to continue to do that? I think that's the attitude of a lot of producers, why do it and lose money doing it?
Pearson: It's even worse if you look at the hog sector, that's eighteen months, some extremely lousy returns. Things started rolling, you had the H1N1 hit which bears no resemblance on the realities of the marketplace but there it is, it does because of the media hysteria over it and now we're looking ahead in this hog market and now they're talking about a sow buyout program similar to what we have in the dairy sector and that's another issue we could go on about. As you look ahead in the hog market, Tomm, you can buy pork awfully cheap right now at the grocery store.
Pfitzenmaier: Well, yes, you can and the domestic demand is probably going to be shored up by that. There's like sixteen different countries that have backed off on their purchases of U.S. pork using the H1N1 as an excuse or a reason or whatever word you want to use and until that gets shored up and we start moving that product out -- we should be moving it. The weaker dollar, the good supplies, there's a lot of supply, we should be down two and a half, three percent on numbers but the weights are up near record levels for this time of the year so we're pushing a lot of pork out and it's just not moving very well. You've got the summer months higher than the cash market is, not as high as they were so I guess you keep selling that carrying charge figuring ultimately those deferreds are going to come down to where the cash market is trading.
Pearson: That's what we'll have to leave it at, Tomm, thanks so much. Tomm Pfitzenmaier with us this week, we appreciate his insights. That's going to wrap up our edition of Market to Market for this week. If you'd like more information from Tomm on where these markets just may be headed visit the Market Plus page at our Web site, you'll find streaming video of our program and you can download audio podcasts of our Market Analysis and Market Plus segments free at our Market to Market Web site. And be sure to join us again next week when we'll examine efforts to preserve historic barns in the Midwest. Until then, thanks for watching. I'm Mark Pearson. Have a great week.
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